Amendment 18

Financial Services Bill - Report (2nd Day) – in the House of Lords at 6:30 pm on 14th April 2021.

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Baroness Bowles of Berkhamsted:

Moved by Baroness Bowles of Berkhamsted

18: After Clause 40, insert the following new Clause—“Undertakings from regulatorsThe FCA and the PRA must each give and publish the modes and timing of the provision of information and responses to Parliament concerning their activities and rule-making.”Member’s explanatory statementThis amendment would require the FCA and PRA to give undertakings about liaising with Parliament.

Photo of Baroness Bowles of Berkhamsted Baroness Bowles of Berkhamsted Liberal Democrat

My Lords, I have tabled three similar amendments in this group, with increasing levels of requirements. Although they were drafted before we had the letters from the regulators, the correspondence from the Minister and today’s letter from the Economic Secretary, the amendments still have currency. Along with other amendments in this group, they allow us to explore current provisions and the adequacy of assurances regarding Parliament’s rights. I remain concerned that there is not even the slightest recognition on the face of the Bill that increased scrutiny must come with wider powers for the regulators. It requires very substantial on the record commitments to make up, even temporarily, for that absence.

In Grand Committee we debated amendments that covered wider aspects of Parliamentary scrutiny than just rule making, as we did on day one of Report, but the heavy focus on rule-making powers is because they are changing right now. EU democratic scrutiny is gone, and the middle statutory instrument layer and formal parliamentary scrutiny are being diminished or removed. Therefore, Parliament’s role needs shoring up. The Minister can be in no doubt about the consensus on that matter, not just in this House but in industry, from replies to the consultation. However, he and the Economic Secretary seem to be maintaining the fiction that, despite the front running in this Bill, change is not actually happening until the end of the consultation.

In the recent reply to the noble Lord, Lord Tunnicliffe, which Labour colleagues have shared with us, the Minister states the caveat that the primary purpose of consultations is to consult industry, practitioners and consumers. That caveat further demonstrates why it is very necessary to have Parliament’s role explicitly reserved.

My family of Amendments 18, 19 and 20 is aimed at finding whether there is something that the Government can accept or modify. Failing that, it is a progressive list around which I ask the Minister to specify whether Parliament, including relevant committees of this House, has these rights already, and whether the regulators must co-operate even if it takes more time, effort, appearances and resource than they are used to at present. That is needed because of the significant change that is already happening—and now, not at a future date.

It did occur to me that perhaps it was necessary for there to be at least a line in legislation giving authorisation for regulators to use more resources, or to remove excuses based on resources, and that the Minister might perhaps be tempted by what is the baby of my amendments, or something similar, which requires merely an undertaking from regulators about timing, provision of information and responses to Parliament concerning their activities and rule making. The resources point is not just my concern. A former regulator, albeit not of financial services, has also wondered, in conversation with me, whether there is authorisation to expend additional resource. That concern is further heightened by the Minister’s caveat on the primary purpose of consultation.

So my question to the Minister is: will he categorically say that there is no reason, including that of resources, for the regulators to ration their appearances before committees and other engagements with Parliament? Can he assure us that, even if there is a lot going on, busyness is not an excuse for regulators to delay appearances before committees or to delay provision of information? Indeed, does he agree that it may well be the opposite, and a lot going on can be a reason for additional engagement?

If we look at what is already being front-run, in terms of Basel and investment firms and then, starting in a week or so, an abbreviated consultation on matters relating to the Hill review, with plenty more to follow, it looks as if many, even most, important changes are going to happen well before we get to the end of the review on the future regulatory framework and that moment when it is suggested that legislation concerning Parliament may be appropriate to fit the anointed changes.

If I were a cynic, I would say the Government have conveniently timed all the front running so that the big work is all done before Parliament’s role has been modified to fit—and that is an insult to parliamentary democracy. Therefore, will the Minister confirm that the regulators must provide high-level witnesses and evidence when requested, and not just to committees but also to APPGs and other parliamentary activity that is all part of wider scrutiny? Speakers are provided to industry conferences: why not to parliamentary ones? Is not engagement with Parliament an important part of communication with the public, including in the context of consultations that the Minister has said are aimed primarily at the public, as well as industry?

The second of the amendments adds a list of documents that must be provided to Parliament no later than they are provided to the public. It might seem trivial, but this is saying that Parliament is not just another consultee. The Minister’s caveat says Parliament is not the primary purpose of the consultation: in that case, there is all the more reason why separate engagement must be assured. I am very disappointed that the Economic Secretary has taken a different view by saying that the response could just be in the general consultation response.

My second amendment would also add in that there must be

“due regard to recommendations made by … Parliament.”

This “due regard” is important. It is explicitly said in the letter from the PRA, but it is not explicit in the FCA letter and it is a key commitment sought in the cross-party Amendments 45 and 48. In this matter we all await confirmation from the Minister that the regulators must—I say “must” rather than a conditional “should”—have regard to Parliament’s views. The Economic Secretary seems to agree with this, even if not specifying a dedicated response.

I turn now to my third amendment. This is definitely daddy bear porridge and no doubt too hot for the Government, but it is based on real life and is just a small part of what is in the interinstitutional agreement that I negotiated between the European Parliament and the European Central Bank concerning eurozone bank supervision. Maybe the Minister can confirm whether most of what I suggest does or can already happen, but I want to run through the thinking and culture behind the additional elements.

First, there is

“a principle of openness and sincere co-operation.”

By that I mean not being defensive and saying the minimum that can be said. We all know that there is a great deal of coaching of officials, whether from departments or regulators, before appearing at committees about how to deal with awkward questions and not to say too much. We have all suffered the “talk long, say little and use up all the available time” strategy. That is not openness and sincere co-operation, and there is a culture issue here that needs to change. I am not so naive as to think that it can be changed by a legislative amendment, but I want to make the point for the record that it is an issue.

My third amendment would also add in “regular updates” on principles and the kinds of information and indicators used in developing rules and policies. This would, of course, include policy on supervision and enforcement, as well as rule-making. Here, I want to pick up on another point that the Minister put in his reply to the noble Lord, Lord Tunnicliffe. I will read it because not everyone has seen it. The Minister says:

“And we would be comfortable about agreeing that Parliament has the principal role in terms of the broader matter of scrutiny and oversight of the regulators’ activities”.

The Economic Secretary also states a unique and special role, but we can scrutinise only what we are allowed to access. It is necessary to see the ingredients, not just the baked cake.

During the years that I was immersed in EU legislation, one of the refrains that I constantly heard from HMT and regulators was how the EU Commission and the ESAs were so reliant on information from the UK in order to calibrate rules, and that was why the UK regulators could do a better job on their own for the UK. This information, so it was claimed, was fundamental to rules and therefore it should be sufficiently available to show how the case is made, and confidentially when appropriate. So, do we, Parliament and Parliament’s committees, have access to it?

Confidentiality of data is sometimes used by regulators as a reason to be very approximate in public answers in committee. It has been my experience that, once that excuse is removed because a private briefing can be requested, it tends to be used less as an excuse during the public stage. Will the Minister therefore confirm whether all this kind of information is within the rights of Select Committees in this House, as well as the Treasury Select Committee, to require, and if not, why not?

Finally, although it is not in the amendment, can the Minister confirm that Ministers must attend committees when requested? Much is made in the future regulatory framework consultation about regular accountability of Ministers; it is at the top of page 27, for example. My recent experience on the Economic Affairs Committee has been of difficulty in getting timely—sometimes any—attendance from Ministers.

Everyone is trying to do a good job; that is what these and other amendments in this group are trying to ensure. But if Parliament is restricted from doing a proper job on all the front-run legislation, responsibility for that from this Bill forward lies clearly at the feet of the Minister and the Government. I beg to move.

Photo of Lord Blackwell Lord Blackwell Conservative 6:45 pm, 14th April 2021

My Lords, I should like to speak to Amendment 37A in my name and remind the House of my former interest as chairman of a regulated bank until the beginning of the year.

As the noble Baroness, Lady Bowles, set out, within the group there is a range of amendments that seek to serve the same purpose and there is a lot of common ground, as indeed there is in the letter of the Economic Secretary that was circulated today. All the amendments reflect a broad consensus, as expressed in previous stages of the Bill, that with the new rule-making powers post Brexit, there is a need to establish more formal parliamentary scrutiny. There has been consensus in the debate that scrutiny requires a committee charged with that role and appropriate technical support. I and others have made the case that that should involve a joint committee of both Houses, although that is not for this legislative stage.

There is also agreement in all these amendments that where regulators precede their regulation with a public consultation, the information should be provided to Parliament at the same time to allow time for it to comment and its views to be taken into account before the rules are finalised. There is also common ground that regulators should take note of Parliament’s views and respond in some form.

I therefore have some sympathy with the amendment, and Amendments 19 and 20, moved and spoken to by the noble Baroness, Lady Bowles, but I prefer mine because those amendments, particularly Amendment 20, are overly prescriptive on the nature of the information and the interaction between the regulator and a parliamentary committee. It should be up to the committee charged with this responsibility to set out exactly the information it wants and how it should interact, as a parliamentary, rather than legislative, matter.

My amendment also adds the requirement for Her Majesty’s Treasury to set the regulations through secondary legislation, to take note of the parliamentary scrutiny and to bring forward statutory instruments to change the secondary legislation that provides the legal framework for rule-making, which may be a necessary response to the comments made. That is also fully consistent with the Economic Secretary’s letter.

The big divide is between my amendment and Amendments 45 and 48, which introduce a requirement for parliamentary approval of rules before their introduction, other than in exceptional circumstances. Such a requirement would fundamentally change the relationship and role of regulators, originally established as independent, apolitical experts acting under parliamentary laws. Of course, regulators should be subject to scrutiny in their role but for Parliament to approve rules before they are enacted removes the independence of the regulators, effectively thereby making Parliament the operational rule-maker and those rules more subject to political views and intervention. We do not impose that ex-ante approval of rules on any other regulator in any other sector, so far as I know. I cannot imagine that our expert regulators in the financial services sector would be comfortable operating under those straits, whereby anything they did had to be pre-approved by Parliament.

The case for parliamentary oversight is unanswerable, but the proper regime is for Parliament to charge the regulators with independently operating the legal framework that it sets up, and then for Parliament to scrutinise how they operate those responsibilities and to change the legal framework if it wants to change the outcome, rather than Parliament seeking to supervise and approve the detailed rule-making on a day-to-day basis. Rather than wait for future legislation, I hope my noble friend the Minister will find it possible to support my amendment. Failing that, I hope the House will clearly reject Amendments 45 and 48 and the huge —and, in my view, undesirable—shift in the relationship between regulators and Parliament that they would represent. I look forward to my noble friend’s response.

Photo of Baroness Noakes Baroness Noakes Conservative

My Lords, I have added my name to Amendments 45 and 48 in the name of the noble Lord, Lord Eatwell. I also support the intent behind the amendments in the name of the noble Baroness, Lady Bowles of Berkhamsted, and I know that she too supports his amendments. As has been said, these amendments concern one of the key issues that emerged during scrutiny of the Bill: the parliamentary accountability of regulators and the scrutiny of their actions. As already noted, there was widespread agreement around the House at Second Reading and in Committee that Parliament should have a role in scrutinising the rules that the FCA and PRA may make under the new rule-making powers created by the Bill.

Of much greater importance will be what happens when the Government expand the rule-making powers of the FCA and the PRA, as they have outlined in their consultation document on the review of the financial regulation framework. What we do in the context of the Bill is clearly important in signalling what we expect in the context of a larger shift in rule-making powers, if that is what the Government decide to do following consultation. This is particularly important because the Government’s analysis of parliamentary scrutiny in their consultation document was not encouraging; it was largely a defence of the existing committee activities in each House, with no regard to the new circumstances created by the extensive new rule-making powers. The Government—somewhat surprisingly, given their excellent Brexit credentials—seem not to have taken on board that the scrutiny context has changed significantly with the repatriation of financial services regulatory powers from the EU. That context should drive how we see the way forward.

Since our debate in Committee, my noble friend Lord Howe has made available to us the texts of letters from the PRA and the FCA which broadly say that they will do whatever Parliament decides, which is only right and proper. I do not think the letters add much to the analysis of the issues we debated in Committee, but they nevertheless demonstrate a constructive willingness to co-operate with parliamentary scrutiny. When my noble friend responded to our debate in Committee, I was not filled with confidence that the Government really understand the dimensions of the issues around scrutiny and accountability in the context of these additional rule-making powers. I have seen the rather late-in-the-day letter from the Economic Secretary which landed in our email boxes this afternoon. I shall be kind and say that the direction of travel is positive, but we have not yet reached a satisfactory landing point for this debate. I expect we will continue to pursue this issue well beyond the passage of the Bill.

As my noble friend Lord Blackwell knows, I do not support his Amendment 37A because it is a rear-view mirror amendment. I strongly believe that Parliament should have the opportunity to get involved with the rules made by the FCA and the PRA in time to influence their final shape. It is not satisfactory to think that ex-post scrutiny is an effective mechanism for parliamentary involvement. I do not believe the independence of the PRA and the FCA is threatened by this intervention in how rules are made, given the context of the very significant new regulatory rule-making powers expected to be devolved to them. That is why I support the amendments in this group in the names of the noble Lord, Lord Eatwell, and the noble Baroness, Lady Bowles of Berkhamsted, which provide a much better basis for Parliament’s future involvement in additional rule-making powers.

Photo of Lord Davies of Brixton Lord Davies of Brixton Labour

My Lords, these amendments are all on the same broad theme. As the previous speaker mentioned, there is a broad consensus that something needs to be done to provide a formal role for parliamentary scrutiny in the work of financial regulators. I do not want to detain the House, but I will take the opportunity to emphasise points that I have made at earlier stages. The basic question, to me, is: who regulates the regulators? The question is why we should trust the regulators; the answer is openness and engagement. Clearly, we have a particular interest here but can, I believe, contribute massively to the work of the regulator.

For us to raise these issues is not to question the expertise or good will of the people who serve on the regulators’ boards or work in their offices. It is simply wrong to assume that, once appointed, they can be left to get on with the job. As is apparent in the debate, there is clear consensus about the need for scrutiny. That is not contested. Obviously, there are clear reasons why they would benefit—the expertise of this House is a factor—but my particular concern is to establish systems that minimise the risk of regulatory capture. This is the experience, widely found, whereby regulators tend to become dominated by the interests they regulate and not by public interest.

I emphasise that this is not about corruption; it is more, in my mind, a social and cultural problem. I do not think the concept, in theory, is contested. The answer is to strengthen and develop the widest possible involvement of all sorts of bodies in the work of the regulators. Clearly, Parliament has a particular role and these amendments explore possible approaches to it. I hope the Minister can say a bit more than what was in the letter. Does the Minister consider regulatory capture to be something that occurs, and where the systems that are established address it and minimise the risk?

Photo of Lord Sharkey Lord Sharkey Liberal Democrat

My Lords, I will speak to Amendments 18, 19 and 20 in this group. I support them all but prefer the more prescriptive Amendment 20. In these matters, it seems to me that ambiguity is not our friend. Wide latitude in interpretation can easily frustrate intent. As my noble friend Lady Bowles has so forcefully explained, that intent here is to ensure that Parliament has some effective scrutiny role in the activities and rule-making of the PRA and the FCA, by requiring that the information Parliament may need to do this is properly supplied. At present, this is absent or insufficient or likely to be post hoc and ineffective.

This is a specific example of a much larger problem in the relations between the Executive and the legislature. There is an increasing tendency for the Executive to bypass, or try to bypass, Parliament or to reduce scrutiny to formulaic rituals with no real influence on outcomes, such as our SI procedures. The seriousness of this tendency has been commented on fairly widely and frequently in the past few years.

In September last year the chairs of three of our committees wrote a joint letter to the Leader of the Commons. The noble Lords, Lord Blencathra and Lord Hodgson of Astley Abbotts, and the noble Baroness, Lady Taylor of Bolton, asked the Government to give assurances that skeleton Bills would be used only in exceptional circumstances, that statutory safeguards would be provided to ensure full parliamentary scrutiny of the powers conferred, and that the EM accompanying a Bill would identify that Bill as skeleton when it is, provide a full justification for adopting that approach, and set out again the statutory safeguards put in place to protect the role of Parliament. Mr Rees-Mogg replied in October. He agreed that:

“Bills with substantial powers … should not be a tool to cover imperfect policy development.”

Yet almost at the same time that he was saying that, Parliament was dealing with the Medicines and Medical Devices Bill, which was an undisguised skeleton bill. Speaking as chair of our DPRRC, the noble Lord, Lord Blencathra, described the Bill as containing inappropriate powers and as

“an absolute affront to parliamentary democracy”.

The current Bill is of course not nearly as bad as that, but it raises the key question of how to scrutinise the policies behind PRA and FCA actions and rule making now, in the absence of any European parliamentary scrutiny of new measures—and SIs of course are emphatically not effective substitutes for policy scrutiny, even if they were available to us in the current case.

There is also the further issue mentioned already of evading scrutiny by the essentially diversionary tactic of front-running consultations in parallel with legislation. This tactic—in frequent use—is to deny discussion of policy in legislation by reference to concurrent but unfinished consultations. That is what is happening in this case. Parliament is effectively bypassed. The Executive take the power to make policy or allow others to make policy without having decided, or at least told anybody, what those policies may be.

There are, at my last count, 50 statutory regulators. They are all important, but it is clear that our financial regulators have a special importance that requires special parliamentary scrutiny. Noble Lords will have seen the letters of comfort from the PRA and the FCA on this issue. I interpret the Sam Woods letter as welcoming that special scrutiny. I am much less certain about how to interpret the FCA’s parallel letter. In any event, it is for Parliament to decide what levels and means of scrutiny are appropriate.

That is what the amendments set out to do for the PRA and the FCA. I strongly support them, especially Amendment 20, and I look forward to the Minister’s response, especially with regard to Amendment 20.

Photo of Lord Naseby Lord Naseby Conservative 7:00 pm, 14th April 2021

I thank the noble Baroness, Lady Bowles, for raising these issues. All three of the amendments that she has tabled are important. They are to do with the FCA and PRA regulators, and I agree with them. However, I am particularly concerned about the FCA and its linkage to the Financial Ombudsman Service, the FOS, and how that is reported to Parliament. There seems to me a particular concern in this area.

I will take just one key case history. The leading company in the home-collected credit market has been around for 150 years. It has basically produced a credit product of choice for working-class communities for all that time. It is small-scale. It is now suffering from regulatory indifference. There is a model here for home-collected credit that works. It is flexible and forgiving and is the right design for consumers on a low income. The FCA has traditionally supported it and given it a tick all along the line. To put what has happened bluntly, the Financial Ombudsman Service has ignored the understanding of this market, which is part of the consumer credit loan market, and lumped it all together.

The net result is that the FOS is basically taking a summary judgment approach to complaints involving all HCC firms. It is therefore faced with a huge volume of complaints manufactured by the claims management companies. To get round this huge volume, instead of playing its statutory role and looking at each claim on its merits, it is taking a short cut. It is saying, “Okay, we’ll look at 25 properly; anything above that, we won’t”—and so it goes on. That is quite wrong—so wrong that there must be some parliamentary means of ensuring that the FCA carries out its role in relation to what the FOS should be doing, in the knowledge, of course, that the FOS is an independent body. So there is a lack of linkage somewhere in this, which should be another area for parliamentary scrutiny.

That was only a shorthand case history, but it demonstrates that what is behind the amendments tabled by the noble Baroness, Lady Bowles, has great value. I shall think very seriously about supporting them, depending on what my noble friend on the Front Bench chooses to say in his closing words.

Photo of Lord Bruce of Bennachie Lord Bruce of Bennachie Liberal Democrat Lords Spokesperson (Scotland)

My Lords, I am happy to speak briefly to the amendments moved by my noble friend Lady Bowles. I am grateful to her and to my noble friend Lord Sharkey for their expertise both in drafting the amendments and in explaining in detail why it is important for the Government to consider the points behind them.

As a member of the EU Financial Affairs Sub-Committee and, until last month, of the EU Services Sub-Committee, for the last four years, I have been involved with scrutinising the financial services sector. Nobody should doubt the importance of this sector to the UK economy; it is worth reminding people of that, even though this is a technical amendment. I will not rehearse the statistics on the share of the economy, jobs, tax revenues, the balance of payments and so on. Apart from that, it is also the lubricant of the whole economy, and when it goes wrong, a few people make a fortune but most people suffer—some severely.

The regulation of the sector has been subject to the scrutiny of this House and, importantly, as has already been mentioned, the resources of the European Parliament, with British MEPs taking the lead in many instances. My noble friend Lady Bowles was one of the most distinguished of them in that department. Yet the financial crash was the consequence of light-touch regulation and there are concerns that this Bill may be creating a framework for similar mistakes. Certainly, without effective accountability to Parliament there is a danger that regulators might—intentionally, but more likely otherwise—allow financial services to be regulated in ways that could put individuals’ pensions and savings at risk and prejudice the viability of businesses, especially SMEs.

Outside the European Union, it is more important than ever that financial services regulation is effectively scrutinised. Without the resources of the European Parliament, we need a dedicated committee, with the necessary resources and expert support, to ensure that regulation is understood and fit for purpose. We all know that the Government want flexibility in the post-Brexit age in order to compete globally. Of course, that is not wrong in principle, and the sector repeatedly argues that its ability to do so will depend on transparent and effective regulation, because that is what gives confidence to the users of financial services. Get it wrong and, as we stand alone, it could have disastrous consequences.

I also support the argument that requiring financial regulators to engage with Parliament as part of the process of implementing regulation is not obstructive. It actually serves the regulators’ and the Government’s interests much better, because it ensures a better understanding of their purpose and helps highlight whether or not there may be consequences which had not been thought through and which could have negative implications for the sector.

By positive contrast, if the Government, regulators and Parliament can work together as partners, we can consolidate and enhance our world lead. We have been one of the most important financial sectors in the world and we all want that to remain the case, but we have created a challenging and difficult circumstance for ourselves. If we get this wrong, we could suffer a great deal. We need to get it right and it is important that the Government acknowledge that these amendments are designed to support the regulators and the Government in ensuring that our financial sector still has the confidence of the world market it seeks to serve, and is not subject to a closed, unconsulted, unscrutinised form of regulation that, without intention—or maybe with intention, if some Ministers wish to push it—could compromise the integrity of the sector. That will serve nobody’s interests, and I hope the Government recognise that.

Photo of Viscount Trenchard Viscount Trenchard Conservative

My Lords, Amendments 18, 19 and 20 seek to create obligations for the regulators to report to Parliament on what their policies are and what rules they intend to introduce or change. Amendment 18 is the simplest, Amendment 20 is the most prescriptive and Amendment 19 is somewhere in the middle.

These three amendments are all rather strangely worded as undertakings from regulators. Amendment 20 almost implies that it is not taken as a given that there will be a principle of openness and sincere co-operation in assisting a relevant select committee in the conduct of any inquiry. As a member of the EU Financial Services Sub-Committee, and later the EU Services Sub-Committee, I can say that we have often examined senior officers of the two regulators and it has never even crossed my mind that they would not apply a principle of openness and sincere co-operation in giving their evidence.

These three amendments refer to the provision of undertakings from regulators and cover the whole of their activities and rule-making, which is rather too broad and gives the impression that Parliament will act in a direct supervisory role. They do not specify, moreover, how and in what form the undertakings will be given to Parliament.

Contrary to the experience of the noble Baroness, Lady Bowles, the Economics Secretary has been willing on, I think, two occasions in the past year to speak to the EU Services Sub-Committee and has, as far as I know, been very willing to accept the committee’s invitation. Under the excellent chairmanship of the noble Baroness, Lady Donaghy, my noble friend Lady Neville-Rolfe, who is in her place, the noble Lord, Lord Bruce of Bennachie, and I have struggled with these issues and put in a considerable number of hours thinking about them. That experience has certainly informed my remarks today.

Amendments 37A, 45 and 48 seek, similarly, to establish a formal basis for parliamentary scrutiny of the regulators in the exercise of their new rule-making powers under the Bill. I rather prefer Amendment 37A, in the name of my noble friend Lord Blackwell, because that does not require prior parliamentary approval, which would tend to undermine the independence and authority of the regulators.

Amendments 45 and 48, in the name of the noble Lord, Lord Eatwell, and others, are much more prescriptive and beg the question as to precisely how a “relevant” committee of each House, or indeed a joint committee of both Houses, is to be charged with scrutinising proposals. These amendments compromise too much the regulators’ ability to exercise their powers, and there are at present no parliamentary committees that could effectively perform these duties with sufficient resources.

I very much hope the Minister will tell your Lordships the Government’s proposals as to how parliamentary scrutiny of the regulators’ exercise of the delegated powers should be carried out and how they think the present committee structure will be able to cope with that.

I note that my noble friend Lady Noakes, who speaks with great knowledge and experience of these matters, supports these amendments, and I almost always agree with her. She suggested that my noble friend Lord Blackwell’s amendment involves looking at regulations through a rear-view mirror. I point out that my noble friend’s Amendment 37A mentions the provision of rules to the relevant Joint Committee or committees

“either before taking effect or within 5 days after taking effect”.

The existence of such an obligation would surely ensure that the regulators would maintain an ongoing dialogue with the committees on their policies as they evolve but would not unreasonably restrict or delay their ability to act when necessary.

Photo of Baroness McIntosh of Pickering Baroness McIntosh of Pickering Conservative 7:15 pm, 14th April 2021

I find I have a great deal of sympathy with the amendments in this group. Before I address them, what has concentrated my mind as to how I will vote is that I understand there is a business Motion to be considered tomorrow that Standing Order 44, that no two stages of a Bill be taken on one day, be dispensed with on Monday 19 April to allow the Financial Services Bill to be taken through its remaining stages that day, and that therefore under Standing Order 47 we will not have the opportunity to amend on Third Reading. If that is the case, we have to decide today how we are going to deal with this group of amendments and will not have the opportunity to return to them at Third Reading. I wonder whether my noble friend the Minister, in summing up, can confirm that my understanding is correct in that regard.

I am always full of admiration for the noble Baroness, Lady Bowles, and support the main thrust of her Amendments 18, 19 and 20. For once, I find myself in good company with my noble friend Lady Noakes; I hope this trend will continue. As yet I have not persuaded my noble friend Lord Trenchard to join us in this venture, but I believe the noble Baroness, Lady Bowles, has identified reasons for us to support this proposal. Of course it is right that the Government should consult industry, practitioners and consumers, but what is missing—it is the major omission addressed particularly by those amendments I am minded to support in this group—is any opportunity for Parliament to scrutinise what will be major changes to our law in this Bill.

I was most interested to hear the noble Baroness, Lady Bowles, ask at the end whether Ministers would attend committees when required. I always thought it was the case that they had to have a very good reason not to attend parliamentary committees, but I stand to be corrected when we hear the summing up.

I could not put it any better than my noble friend Lady Noakes as to why I cannot support my noble friend Lord Blackwell’s amendment: it appears to be looking through the rear-view mirror. If anything, we need the opportunity to look at these regulations and provisions before they come into effect. There was a full complement of signatures so I was not able to sign Amendment 45, but I have lent my signature to Amendment 48.

I believe that, whether we adopt Amendment 45 or 48, or Amendments 18 to 20, they have a great deal of merit. As I said earlier, it is an extraordinary omission for the Bill not to provide for advance parliamentary scrutiny and, in the words of my noble friend Lady Noakes, parliamentary accountability of very important regulators in this field. We need only to look back at the financial crisis and subsequent moves to see how important the role of financial services is in the whole economy.

I conclude by responding to my noble friend Lord Trenchard. I do not believe that it is a very good argument to say that we cannot scrutinise the role of regulators because committees do not have sufficient resources. If anything, that is an argument to have more members. Many of us are not able to serve on committees at this time because they do not have enough places, so, if anything, I would support his call for more resources for these committees to ensure that we can. Whichever amendment we adopt—I am sure that this a subject close to the heart of the Deputy Speaker—we must provide the resources and the time to perform a proper scrutiny role in this House. With those few remarks, I am tempted to support Amendments 45 and 48 or Amendments 18 to 20 this afternoon.

Photo of Baroness Shafik Baroness Shafik Crossbench

My Lords, it is a great pleasure to follow the noble Baroness, Lady McIntosh, and all the previous speakers, who have added a great deal of expertise and judgment to the debate so far. I am grateful for the opportunity to speak on this important group of amendments, which would make sure that there is sufficient parliamentary scrutiny of the regulators, who are the ultimate referees in determining whether financial markets are fair, effective and serve the public interest.

The key question is how to make sure the referees are doing a good job, and there were many excellent proposals put forward today on how to enhance scrutiny, including Amendments 18, 19 and 20 from the noble Baronesses, Lady Bowles and Lady Kramer, Amendment 37A from the noble Lord, Lord Blackwell, and Amendments 45 and 48 from the noble Baronesses, Lady Bowles, Lady Noakes and Lady McIntosh, and the noble Lord, Lord Eatwell. Those amendments all focus on putting in place reporting requirements to Parliament. I want to focus on who is best placed to receive this reporting, given its highly specialised nature.

I realise that this is an issue not of legislation but of how Parliament chooses to organise its affairs. But what we put in legislation also depends on the institutional structures that are in place, and meaningful scrutiny needs to be adequately supported. I support the recommendations of the All-Party Group on Financial Markets and Services, which argues that to enable effective scrutiny of regulators there needs to be a new Joint Committee of parliamentarians from both Houses with a specific remit for financial services, supported by expert advice—something to which the noble Lords, Lord Blackwell and Lord Bruce, have also referred, as well as the noble Baroness, Lady McIntosh.

I know from my time as Deputy Governor of the Bank of England how technical some of these regulatory issues are. A dedicated joint committee would be able to draw on independent advice and respond flexibly to issues that arise to ensure the public interest is well served. Such an institutional structure would be in the spirit of a principles-based regulatory regime, rather than relying on more detailed legislative approaches. It would also be consistent with the welcome letter sent today by the Economic Secretary to the Treasury to the chief executives of both the FCA and the PRA seeking to have proper parliamentary oversight of financial services regulation in future.

One area where potential parliamentary scrutiny of the FCA and the PRA could be useful is around how their work supports UK competitiveness. I know this is an issue that has already been covered at some length and with great expertise by this House, and I know that many have argued for strengthening the competitiveness objectives for the FCA and the PRA.

I would prefer to stick to the current language for four reasons. First, in my many years of doing surveys of investors at the World Bank, I have never seen easier regulatory standards featuring as a factor that makes a country more competitive. Instead, macroeconomic and financial stability, a skilled workforce and good infrastructure were what mattered most across the world. Secondly, just as you do not want a weak referee in order to have a good game, markets operate best when they are fair to all players. Thirdly, we have been able to support innovation in areas such as fintech through the use of things such as regulatory sandboxes, which allow experimentation while containing risk. Finally, there are many others who do a very good job of promoting financial services in the UK, including Her Majesty’s Treasury, the lord mayor and the many industry associations.

I also suggest that, for the moment, climate change is an area where parliamentary scrutiny, rather than legislation, might be useful. Central banks and regulators around the world are moving quickly to address climate risks. We are in a moment of great innovation, with climate stress testing, improved disclosure requirements, scenario planning, looking at climate exposures on both sides of the balance sheet and enhancing accountability for senior managers. All of this is wonderful, and I especially welcome the move to setting regulatory requirements for all market participants based on agreed definitions and rules, rather than relying on voluntary approaches and inconsistent criteria.

For now, I am comfortable with requiring regulators to have regard to climate issues—the recent remit letters are a good example of this—with appropriate parliamentary scrutiny of how that is happening. However, we should definitely return to this issue as part of the future financial framework once we have more evidence and experience from current innovations, so that we can codify in legislation the best possible approaches to addressing climate risks. Here as well, having a Joint Committee with access to relevant expertise would only enhance the quality of scrutiny around issues of climate change.

In conclusion, I very much hope that the Minister will be able to further reassure the House of how expert parliamentary scrutiny will enable Parliament to play a key role in future oversight of the regulators.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, I will pick up some of the comments that have been made during the course of this absolutely outstanding debate on this series of amendments.

The noble Baroness, Lady McIntosh, said that she had never heard of Ministers not attending or coming before committees. I was on the Finance Bill Sub-Committee of the Economic Affairs Committee when we dealt with the loan charge, and, on several occasions, the Economic Secretary, Mel Stride, refused point blank to come and speak to the committee. We were then informed that committees have absolutely no power to summon Ministers; they come only at their own discretion. Mel Stride’s successor, John Glen, took a very different view and came before a combined committee of the Economic Affairs Committee and the Finance Bill Sub-Committee. I make it clear that there certainly are Ministers who very strongly take the view that they can be asked to come before the House but are not required in any way to say yes.

I also pick up a concern that the noble Baroness raised about whether we have to make an absolute decision today. If she looks at the Marshalled List, she may notice Amendment 37F, in my name and that of my noble friend Lady Bowles, which will come up on Monday. In fact, it is deliberately placed to give us the opportunity to listen in full to the Minister and consider this issue but still have an opportunity to make a decision on it if we decide that the Minister’s contribution does not meet the needs of the House. As such, there is an opportunity, should we decide to do so; some may wish to act today, and others may decide that they are satisfied by what the Minister says.

I also pick up the comments of the noble Lord, Lord Blackwell, and the noble Viscount, Lord Trenchard, on the advance parliamentary scrutiny of rules. I very much challenge what they said because, for many years, in the European Parliament and the European Council, parliamentarians had the opportunity to scrutinise both directives and the rules that would flow from them in a very thorough and extensive manner and with the support of a great deal of specialised expertise in the form of specialised and experienced staff.

Then this House had the opportunity to mark its approval or denial, because those rules came forward in the form of secondary legislation. Now, the change that is taking place is not just that scrutiny is being lost at European level, but that—and this is front-run in the Bill, made clear in the consultation on the future regulatory framework and the Government have been open about it—they intend to repeal all the relevant secondary legislation. What was previously secondary legislation will now be relabelled “rules” and come into effect through the regulator’s rulebook only. That is why we have a major issue today. How Parliament will hold those rules accountable after their renaming from secondary legislation to rules is completely unclear. As I say, this is being front-run ahead of the consultation that deals with it.

I am supportive of Amendments 18, 19, 20, 45 and 48, all of which seek to create a framework for accountability, but I appreciate that the Government have tried to make some progress on this. As the noble Baroness, Lady Noakes, and my noble friend Lady Bowles both noted, the FCA and PRA provided letters to the noble Earl, Lord Howe, who was kind enough to make them available to us, setting out their views on accountability in the future. The two letters strike me as remarkably different. The letter from the PRA recognises that a significant layer of scrutiny has been removed, and Sam Woods has said the same in various speeches. Yesterday, I attended an all-party parliamentary group for challenger banks, mutuals and building societies, at which Sam Woods acted as a witness. He made clear then that a level of scrutiny had been removed. While it was not his place to propose what the new scrutiny should be, he recognised that it would not be unexpected for Parliament to require significant additional accountability mechanisms. I do not think I am putting words into his mouth. That at least provides some sense of the situation that we are in and a direction of travel, although it is not for the regulator to propose that scrutiny; it is for the House.

The FCA letter struck me as entirely different. It seemed entirely satisfied with the situation as it is today and did not anticipate the need for additional forms of scrutiny. Two things really raised my hackles in that letter. One was that, in trying to explain accountability, it states:

“We continue to work closely with our HM Treasury colleagues”.

HM Treasury is not Parliament and, when a regulator cannot tell the difference between them, I am exceedingly concerned. It may be in HM Treasury’s interest to be seen as Parliament—I sometimes think, when we take evidence from it in various committees, that that is how it sees itself—but that it is not the situation and it reflects the problem that we are concerned about. Later in the letter, there is an offer:

“We are committed to ensuring that Parliamentarians have the information they need to scrutinise our policy and rule proposals, particularly during consultation. … We are always happy to hear views on and discuss our ongoing work in more detail with MPs, Peers and Parliamentary committees if this is helpful.”

The term “patronising” probably applies to those two sentences.

But let me go back to the all-party parliamentary group I mentioned a moment ago. The meeting was to look at the potential, post Brexit, to create new opportunities for our financial services, particularly the challenger banks and the building societies. As I said, Sam Woods came along as a witness, and brought his head of prudential policy. The FCA declined to attend, despite more than one invitation. I am also a very active member of the All-Party Parliamentary Group for Whistleblowing. We have worked closely over recent years with both Andrew Bailey and Chris Woolard, who have had an open door for the group, because the issues of whistleblowing have been so pertinent and so significant. However, I have to say that Nikhil Rathi has declined to meet the group—although he has offered an alternative.

Those are fairly significant factors in trying to understand where the regulators now see themselves. As I read the language of the regulators, we are to recognise a significant transfer of power. In the case of the PRA, that seems to be accompanied by a recognition that there must be additional scrutiny and accountability, but frankly, I am convinced that that message has not conveyed itself to the FCA. I also read the letter that we got very late this afternoon from John Glen, the Economic Secretary. It was well described by the noble Baroness, Lady Noakes, as a work in progress—a small movement towards understanding the complexity, the significance and the level of activity that must be involved in proper scrutiny by Parliament.

I have one particular question for the Minister, which he may be able to help me with. I gather from a number of conversations that the PRA is to come forward with a new regime. I think it will appear first in a White Paper or a Green Paper, or whatever other colour of paper it may be. These will be new proposals on how, now we have left the European Union, we might change the way we regulate small banks and perhaps other financial services institutions—an entirely sensible piece of work. Presumably, rules will then follow, as a consequence of that piece of work. My understanding from the Minister is that the future regulatory framework will not be in place until 2022, if we are lucky. Under what regime, then, would new rules—for example, those affecting small banks—proceed? Would they be end-run again, as the provisions in this Bill are being end-run? Or would they go through the traditional process of secondary legislation, with an opportunity for Parliament to approve? I do not know the answer, and I hope that the Minister will enlighten us. It seems to me that that question underscores the problem.

My noble friend Lady Bowles said that, by the time we have a regime in place, it will be rather late. So the principles that underpin that regime will have to be agreed much earlier, if there is to be action on new rules and new ways of working within the financial services sector. Given that we have just left the European Union and we are going through a period of change, I cannot but believe that that will be fairly extensive.

I very much look forward to the Minister’s comments. The letter from the Economic Secretary included a “must have regard to”—a useful phrase. Regard must be had to parliamentary responses to consultations. We can argue about whether the consultation process is sufficient or adequate, but that phrase is only in a letter; it is not in the Bill. I wonder why the Government are not willing to put some of the commitments that they are willing to describe either on the Floor of the House or in letters, into a form that could go on the face of a Bill, and so give this House confidence that the direction of travel is a direction that we can live with.

Photo of Lord Eatwell Lord Eatwell Labour 7:30 pm, 14th April 2021

My Lords, I would like to begin by acknowledging the considerable efforts that have been made by the noble Earl, Lord Howe, to provide greater insight and information in the form of letters from the CEOs of the FCA and PRA, and to encourage the Economic Secretary to the Treasury to provide his letter today, all of which have enhanced and coloured this debate. These letters have been quoted by many speakers. I am most grateful to the noble Earl for his strenuous efforts and commitment to making this legislation useful.

In Committee, we had some valuable debates on parliamentary scrutiny and the activities of the financial services regulators that dealt with the important point that those activities are now entirely repatriated from the European Union. It is clear, as Sam Woods, the CEO of PRA, states in his letter to the noble Earl, Lord Howe, that

“it would seem natural to us that, if some rulemaking responsibilities previously conducted at EU level move to us, Parliament might choose to evolve the way it scrutinises that activity.”

Mr Woods is entirely correct, as the debate this evening has demonstrated.

The role the European Parliament has in the development of financial regulation reflects the EU’s preference for embedding high levels of technical detail in EU primary law. It has been made clear by the Treasury, notably in the consultation document on the regulatory framework review, that the approach to be developed in the UK is to be quite different. It is to be a principles-based approach, in which

“the setting of regulatory standards is delegated to expert, independent regulators that work within an overall policy framework set by Government and Parliament.”

However, it is also evident from that consultation document that in respect of parliamentary scrutiny, there has been an important—shall I say—oversight or error. As was made clear in that document, the FCA and the model of regulation introduced by that legislation continue to sit at the centre of the UK’s regulatory framework. However, it is FiSMA that sits at the centre. FiSMA is the model of regulation that was introduced, but it was produced in 2000, when the UK was a long-standing member of the European Union and UK politicians participated in the scrutiny of financial regulation at EU level. The noble Baroness, Lady Kramer, has emphasised this point.

The Treasury has failed to take into account the need for a different domestic approach to democratic scrutiny now we have left the European Union. Simply reproducing the structures that have worked for the past 20 years, as is done in chapter 3 of the consultation document, is just not good enough. This was the key issue debated on Second Reading and in Committee.

Powers returned from Brussels need to be redistributed between Parliament and the regulators. The nature of that redistribution is at the heart of our discussion. In the regulatory model adopted by the UK, an increase in the powers of the independent regulators is inevitable and necessary, as I agree they are best placed to take on the many technical functions previously handled at the EU level. But the inescapable conclusion is that this increase in regulators’ powers will need to be accompanied by new checks and balances. The role of Parliament in this new setting is what is at issue in these amendments.

Once viewed in these terms, it is clear that the role of Parliament must evolve as Mr Woods suggests, to include not just issues such as the regulatory perimeter or the alignment with international regulatory norms, such as the Basel rules, but also because financial services regulation sits within a wider set of public policy priorities, as the noble Baroness, Lady Shafik, said. These include economic growth, UK competitiveness, domestic competition, financial inclusion, intergenerational equity and, of course, climate change. The creation of an effective regulatory framework requires that these factors be balanced against the needs of financial services.

This new approach, a balancing approach in which Parliament plays a central role, deserves a label, so I am going to call it the “New Scrutiny”—with a capital N and S. The “New Scrutiny” will involve consideration of policy and rule-making but should go further to encompass performance reviews and impact assessment.

The noble Earl, Lord Howe, argued in a letter to my noble friend Lord Tunnicliffe that the debate on this issue during the passage of the Bill has primarily focused on the regulators’ consultations on draft rules. This is an important part of the regulators’ activities, but the Government view the issue much more broadly —to also encompass their broader work, for example on supervision and enforcement, their operational effectiveness and their strategic approach to delivering their objectives.

I predict that the “New Scrutiny” will become a valued component of the regulatory mechanism in the UK, a beneficial complement to the work of the Treasury, the regulators and the Bank of England. It is clear from the speeches at Second Reading and from the debates in Committee that there is a shared wish on all sides of the House for a platform to be established on which Parliament could play its role by building an appropriate committee structure to accommodate the “New Scrutiny”. That platform rests on three legs of commitment to active, open, transparent engagement in the parliamentary process: the commitment of the FCA, of the PRA and of Her Majesty’s Treasury.

I am grateful to the noble Earl, Lord Howe, as I said at the beginning, for having solicited the written expressions of two legs of that platform in the forms of the letters from the chief executives of the FCA and PRA. I am very pleased that today the Economic Secretary to the Treasury provided the third leg of commitment, hence stabilising the structure. I believe we now have the firm tripartite co-operation that can, if effectively implemented, enable Parliament to instruct an appropriate committee or committees to implement the “New Scrutiny”.

To put the matter beyond doubt, allow me to summarise the substance of the three legs. Sam Woods of the PRA has stated:

“Our legitimacy depends on the role and powers Parliament chooses to allot to us and how we then action that role and powers, and we are absolutely committed to working with Parliament (including its committees) to ensure it has the information necessary to hold us fully to account.”

This view is echoed by Mr Rathi of the FCA, who says,

“we consider that robust accountability and scrutiny is an essential part of an effective regulatory regime. We are committed to exercising our functions in an open and accountable way, and a transparent relationship with Parliament is critical to our ability to do our job well.”

Those are the first two legs, and the third leg has now been provided by Mr Glen, who has argued the following. First, he says, Parliament has a unique and special role in relation to the scrutiny and oversight of the PRA and the FCA. Secondly, he says, the PRA and the FCA must have due regard to the conclusions of any parliamentary scrutiny. Thirdly, he continues, this should include providing a comprehensive response to any relevant parliamentary committees regarding any issues raised as a result of this scrutiny. Mr Glen’s letter also refers to the ongoing future regulatory framework review, which is looking more broadly at the question of how our financial services regulatory framework needs to be adapted for the future. He confirms that the review will include consideration of how we can ensure the proper parliamentary oversight of financial services regulation in future, taking account of any changes that will be made to roles and responsibilities as a result of that review.

I am aware that to rest on any Minister’s predictions of the future is not the safest of things to do. However, given that those words are all in the same letter, I take it as an acknowledgment that in this essentially interim Bill we have forged a tripartite structure, which is not only a structure for today but a starting point for the future new scrutiny.

The financial regulatory framework review will of course bring forth new legislation. I hope it will be a new beginning: a reassessment and rewrite of the ageing, much-revised FiSMA, now approaching its 21st birthday —an eternity in financial services. An important element in the success of the FiSMA of 2000 was the pre-legislative scrutiny by a Joint Committee of both Houses, brilliantly led by the noble Lord, Lord Burns. Similarly, there was a pre-legislative Joint Committee on the draft Financial Services Bill 2012 chaired by the noble Lord, Lord Lilley—the right honourable Peter Lilley, as he then was. In both cases the Government acknowledged that the Joint Committees’ analysis, advice and recommendations were invaluable and resulted in a significant number of amendments to the draft Bills. I hope and expect that those encouraging precedents will be followed once again.

The form that parliamentary scrutiny takes is of course ultimately up to Parliament to decide. But the successful experience of the pre-legislative Joint Committees suggests that the new scrutiny might be embodied in a standing Joint Committee, developing experience and expertise to make a significant, positive contribution to the development of financial regulation in this country.

It is important to notice that the establishment of such a Joint Committee could be done now. The noble Baronesses, Lady Bowles and Lady Kramer, and the noble Lord, Lord Sharkey, have all expressed the fear that the Government are front-running regulatory reform and that there is inadequate scrutiny of the current view. However, the lack of adequate scrutiny is primarily the fault not of the Government but of Parliament. If there is such strong feeling on this matter on all sides of this House, and I certainly feel strongly about it, then the appropriate scrutiny committee can be established right now. That would also have the advantage of exposing any inadequacies of information of the sort that the noble Baroness, Lady Bowles, fears, should such inadequacies be present. It is up to Parliament to act.

Having said all that about setting the framework that I believe we are establishing, I turn—very briefly, I promise—to the amendments before us. The noble Baroness, Lady Bowles, has provided a menu with three courses, successively embodying richer and richer fare. Amendment 18 is a bit too thin, I think, and not satisfying, while Amendment 19 is rather more filling. Amendment 20 is an outstanding and satisfying feast, so who could possibly want less?

In his Amendment 37A the noble Lord, Lord Blackwell, turns from ingredients to recipe—the way in which the ingredients might be put together. I am afraid that I find his recipe somewhat difficult to follow, since it would appear in part to come into effect only five days after the cake has been baked. This has been referred to as the rear-view mirror.

The amendments in my name, Amendments 45 and 48, are also recipes. They not only outline the relationship between regulators’ rule-making and the opinions of a relevant parliamentary committee or committees but make provision for alternative emergency procedures when Parliament is not sitting. I am afraid that the noble Lord, Lord Blackwell, has clearly and substantially misread my amendments. They allow the regulators to proceed in the way they wish without parliamentary approval. It is simply stated that if they behave in that way, they have to provide an adequate explanation. There is no parliamentary intrusion of the sort that he suggested there might be in these amendments. There is simply a clear role for Parliament to examine rules, procedures and strategies before they are put into effect, and to expect an explanation if Parliament is subsequently ignored.

Amendments 45 and 48 strike just the right balance between Parliament and regulators within the evolving structure of the new scrutiny. Once again, I must say that I am pleased to find versions of those recipes in the Economic Secretary’s letter and very pleased that he has endorsed my amendments. I look forward to the Minister’s reply containing, as it surely will, further suggestions as to how this legislation can be made yet more useful.

Photo of Earl Howe Earl Howe Deputy Leader of the House of Lords 7:45 pm, 14th April 2021

My Lords, it is a pleasure to turn once again to the issue of parliamentary accountability of the financial services regulators, and I thank all noble Lords who have contributed to this good debate. This is an issue of considerable importance to many in this House and, indeed, has been a central topic of debate during the passage of the Bill.

Each amendment in the group proposes different things but I know that at the heart of them all is a desire for reassurance from me, as Minister, that the Government agree with the regulators that Parliament has a unique and special role in relation to the scrutiny and oversight of the financial services regulators. I therefore take this opportunity to give the House that assurance. It is Parliament that ultimately sets the regulators’ objectives and, of course, right that it has the appropriate opportunity to scrutinise the work of the regulators and their effectiveness in delivering the objectives that Parliament has set them. This most certainly includes the way in which the regulators exercise their rule-making powers but also encompasses their wider work on supervision and enforcement across the financial services sector.

Noble Lords will, I hope, have had a chance to read the letters of 19 March from Nikhil Rathi, the CEO of the FCA, and Sam Woods, the CEO of the PRA, that I have deposited in the House Library and the Royal Gallery. Those letters can properly be interpreted as a commitment to the openness and sincere co-operation which the noble Baroness, Lady Bowles, said she sought. I do not in the least detect the complacency that the noble Baroness, Lady Kramer, said she detected in the letter from Nikhil Rathi. Perhaps I may quote the sentence that she cited. He said:

“We are committed to ensuring that Parliamentarians have the information they need to scrutinise our policy and rule proposals, particularly during consultation”.

I do not detect any shadow of qualification to that commitment. Sam Woods, chief executive of the PRA, wrote:

“When we publish consultations, we always stand ready to engage with Parliament.”

So the regulators have clearly demonstrated that they have heard the views expressed by noble Lords during the passage of the Bill. Despite the reservations of my noble friend Lady Noakes, I hope noble Lords accept that these letters take us forward in a meaningful and material way.

In addition, I can confirm that my honourable friend John Glen, the Economic Secretary to the Treasury, has today written to the CEOs of the FCA and the PRA to endorse the commitments made in their letters and to reiterate the Government’s views on the importance of parliamentary scrutiny. In his letter, the Economic Secretary warmly welcomes the commitments which the PRA and the FCA have made to have an open and transparent relationship with Parliament. The Government are clear about the way in which the regulators should continue to engage with Parliament and provide it with the information it needs to effectively scrutinise their policy and rule-making proposals, particularly during their consultation periods.

Let me also reassure noble Lords that the Government agree that, while the independence of the regulators is crucial to the effectiveness of the regulatory framework, the PRA and the FCA should have due regard to the conclusions of any parliamentary scrutiny of their consultations. My only qualification to that is to say that clearly regulators will need to make judgments where there is commercially or market-sensitive material in question. The Government also agree that the regulators should provide a written response to parliamentary committees in relation to any concerns they have expressed following that scrutiny. Where appropriate, this may be done through the responses that the regulators publish following their consultations.

I now turn to the amendments themselves. First, I would like to thank noble Lords for the constructive way in which they have approached this issue and the fruitful engagement we have had since Committee.

Amendments 18 and 19 envisage Parliament being given the opportunity to review and make recommendations on all regulator rules and draft rules. The noble Baroness, Lady Bowles, made some very well-judged observations in support of these amendments, and I am grateful to her for having tabled them. I hope she will agree that the Government and the regulators have now demonstrated that they are committed to ensuring that Parliament has the opportunities it needs to scrutinise the rules and draft rules and is committed to responding to any points raised.

The noble Baroness, Lady Bowles, asked me about the powers of parliamentary committees. Select Committees from either House already have the power to review the FCA’s rules at consultation, to take evidence on them and to report with recommendations to influence their final form. The current framework therefore already allows Parliament to play a strategic role in interrogating, debating and testing the overall direction of policy for financial services, while allowing the regulators to set the detailed rules for which they hold expertise.

Amendment 20 would also commit the regulators to meeting with parliamentary committees. Here again, the FCA must already attend general accountability hearings before the Treasury Select Committee twice a year, and the PRA must already appear before the Treasury Select Committee after the publication of its annual report. In addition to these regular hearings, parliamentary committees of both Houses are able to summon the regulators to give evidence on an ad hoc basis, and they do this regularly. I am, of course, happy to commit that Ministers will continue to make themselves available to Parliament on a regular basis, on the matters that Parliament determines are a priority.

I say to my noble friend Lord Naseby in particular that I believe that there are decided benefits to the flexibility of the current arrangements, which recognise the authority of Parliament—and I would emphasise that word “authority”—to direct its interest in the areas that it considers appropriate. As noble Lords have recognised in this debate, the regulators have indicated that they will engage with Parliament in whatever way it determines is appropriate.

I welcome the fact that, in Amendments 45 and 48, the noble Lord, Lord Eatwell, has set out a consultative approach which would support Parliament to play its right and proper role in scrutinising the work of the regulators, without undermining the ability of the PRA and the FCA to set their rules independently. I also appreciate that he has taken steps to address some of the areas of concern that I had with his previous amendments, such as by enabling agreement to be reached between a regulator and Parliament on shorter consultation periods.

However, the concern that I expressed in Committee remains with regard to the amendments’ application to consultations already undertaken by the time the Bill receives Royal Assent. As I have made clear, implementing rules for the investment firms prudential regime and the outstanding Basel III standards in a timely manner is critical to the UK’s reputation as a responsible and responsive global financial centre. The requirements to lay the consultations in Parliament could unintentionally delay the regulators if laid over a recess, even though a committee could still be running over the recess period. Setting that point of detail aside, I hope that I have persuaded the noble Lord these are not necessary amendments for the Bill, given the commitments that I have made today and the other progress that has been made since we debated this issue in Committee.

To remind the House, the Bill already requires that, in relation to the matters in the Bill, the regulators must set out publicly, at consultation stage and final rules stage, all the information Parliament needs to scrutinise their proposals. This includes detailed explanations for the regulators’ policy choices and how they have considered the wider policy issues to which Parliament and the Treasury ask them to have regard.

The Financial Services and Markets Act 2000 already requires the regulators to undertake these consultations, to consider representations—including those made by parliamentary committees or individuals of this House or the other place—and to summarise and respond to those representations. I have already set out the Government’s expectations in terms of the comprehensiveness of that response. Therefore, I welcome the intention behind these amendments, and hope that I have given noble Lords sufficient assurances that both the Government and the regulators acknowledge that.

Turning to Amendment 37A, I first express my appreciation for my noble friend Lord Blackwell’s continued constructive engagement with the Bill. I welcome the intention behind the amendment, which contributes to the broader debate on how to allow proper parliamentary scrutiny without it negatively impacting the independence of the FCA and the PRA.

The Government agree that Parliament cannot and should not be able to veto rules made by the regulators. However, as I have already set out, it is of course important that Parliament has the opportunity to scrutinise those rules and that the regulators should respond to any issues it raises.

This amendment looks at ex post scrutiny, which the Government agree can be an important component of parliamentary scrutiny. For example, it could allow Parliament to take evidence on how the rules are working in practice. Under the accountability framework in the Bill for the prudential measures, it would also allow Parliament to consider how the regulators have interpreted “have regards” and what impact that has had on their rules. If a parliamentary committee wants to undertake an ex post review of regulator rules and report on them to the regulators, it is very welcome to do so, and both the regulators and the Government would naturally consider such a review and respond appropriately. Therefore, I do not believe that an amendment of this nature is necessary.

In response to the noble Baroness, Lady Kramer, the PRA is indeed planning to publish a discussion paper on strong and stable regulation—a phrase that we may have heard somewhere before—this year. This may require legislation, in which case the Government would obviously need to consider how and when to legislate.

The noble Lord, Lord Davies of Brixton, spoke about the risk of regulatory capture. This is a risk and we must remain vigilant towards it. However, the Government’s view is that the existing arrangements are broadly right to minimise any risk.

Before I conclude my remarks, I think it is important for me to take a moment to pick up concerns raised by the noble Baroness, Lady Bowles, the noble Lord, Lord Bruce of Bennachie, and my noble friends Lady Noakes, Lady McIntosh of Pickering, Lord Trenchard and others about what will happen after the passage of this Bill. I remind noble Lords once again about the ongoing future regulatory framework review, to which the noble Baroness, Lady Shafik, and the noble Lord, Lord Eatwell, rightly referred. The FRF review is looking at whether any changes are necessary to ensure the proper parliamentary oversight of financial services regulation in the future, taking account of any changes that will be made to the responsibilities of the regulators now that we have left the EU.

I reassure the House that the proposals as set out in the review—where the Government are responsible for legislating for the overarching framework, and the regulators are responsible for the firm-level requirements set out in rules—could only be delivered by further primary legislation. I therefore hope this will reassure noble Lords that, once this Bill is complete, there will be further opportunities for Parliament to set out its position on this issue more broadly, and to consider these issues in the round.

The Government look forward to continuing to engage with a wide range of stakeholders as they consider the future regulatory framework, and most especially to engaging with Parliament on it. The House will understand that I cannot anticipate the announcement of legislation which may form part of the next Session’s programme or any pre-legislative scrutiny which may be associated with it. However, the desire expressed by the noble Lord, Lord Eatwell, in particular that there should be pre-legislative scrutiny, if in due course such legislation were to be brought forward, is well and truly noted. The Government will continue to listen carefully to the views of Parliament as they consider the next steps for that review, respecting both Parliament’s constitutional role and the deep and varied expertise of various Members of both Houses.

My noble friend Lady McIntosh of Pickering asked about procedures applicable at Third Reading which, with the agreement of the House, will be taking place next Monday. I can confirm that it will not be possible to return to these amendments at Third Reading. Having said that, I am very hopeful that we can resolve the issue to everyone’s satisfaction today as a result of the assurances that I have given. I hope that they have convinced your Lordships that the Government recognise and respect the unique and special role of Parliament regarding the scrutiny of the financial services regulators. Given this, I hope I have persuaded noble Lords that their amendments are not necessary and that they therefore should not press them.

Photo of Baroness Bowles of Berkhamsted Baroness Bowles of Berkhamsted Liberal Democrat 8:00 pm, 14th April 2021

My Lords, we have had a long and interesting debate, showing unanimous appetite for scrutiny by Parliament, recognising at least from Parliament’s side that there are changes happening now and that therefore this enhanced scrutiny also has to happen now. As the noble Baroness, Lady Noakes, has said—echoed by my noble friend Lady Kramer—this is still a work in progress and, yes, perhaps the direction of travel is going in the right direction.

I thank the noble Lord, Lord Eatwell, for giving us the new vocabulary of the “New Scrutiny”, which certainly makes it easier to identify what we are talking about. I agree with the noble Lord that it is up to Parliament to decide the mechanisms of its own scrutiny. To some extent, that is why I phrased my amendment as I did in the context of undertakings from the regulator. I think I gave the game away in the sense that I said it was to induce discussion about the points I had put in. That we have had.

The Minister has acknowledged that we have a unique and special role and the right to scrutinise the work and effectiveness, including rules, supervision and enforcement. He has acknowledged that there must be openness and sincere co-operation. I want to flag that, and it is important that we have touched on that in this debate. It is also helpful to have confirmation that there must be due regard for the opinions of Parliament.

We are still to some extent perhaps a little behind the curve of where we need to be if it is thought that a couple of appearances a year before the Treasury Select Committee and maybe some ad hoc appearances—the implication is that they might be rare—are sufficient. I did not quite get an answer about whether the regulators could ration their appearances, and nor was there really any response to what my noble friend Lady Kramer highlighted about a certain reluctance by the FCA to participate in the APPGs and some of the other wider operations and scrutiny that happen in Parliament. I hope this debate will have been enough to draw that to attention and maybe rectify that behaviour.

One thing that really still troubles me about what the Minister said was his caveat, when he said the regulators may have to have regard to commercial or market-sensitive data. That was precisely the point of some of my Amendment 20 suggestions. Some information may have to be in confidence, because there is still this point about how the rules are calibrated. Yes, you can have all the philosophical and policy explanations of what lies behind the rules, but the fact of the matter is that one does not necessarily get the data to check whether those rules have landed in precisely the right place. This is something Parliament should be able to check, even if it is done in a confidential manner if that data would be of a commercial or market-sensitive nature. It is something that the European Central Bank has conceded to the relevant committee of the European Parliament, and I do not really see why we have to be more secretive than it is. That does not seem to put us in the front line of where a modern regulator should be.

Therefore, the caveats that are put in do rather undermine the attempts to tell us we are going to have the relevant level of information. I think there is still a little bit of denial going on, on the side of the Government, at least, about the fact that there is all this front running going on. They still do not want to give even a single line in a piece of legislation acknowledging that the Parliament needs to have the ability to respond now to that front running. Well, it will be up to the Parliament, and I accept that it is also up to individual members of the various scrutiny committees, to do their work. I hope that the debate today has been a taster, perhaps, of the strength of feeling that might develop on some of these committees.

As I said, my amendments today were really to try to draw the Minister, as I have to some extent, and other noble Lords helped very greatly with all their very good and thoughtful contributions. There is still time for more consideration before we get to the final day of Report, and, as my noble friend Lady Kramer noted, there is still another amendment on this topic to debate and other votes to be taken. So, I will not be pressing my amendments today. I may well return to this general topic and that other amendment on Monday, but today, I beg leave to withdraw Amendment 18.

Amendment 18 withdrawn.

Amendments 19 and 20 not moved.

Photo of Baroness Henig Baroness Henig Deputy Chairman of Committees, Deputy Speaker (Lords) 8:15 pm, 14th April 2021

We now come to the group beginning with Amendment 21. Anyone wishing to press this or anything else in the group to a Division must make that clear in the debate.